Istanbul Stock Exchange announced by 16:25 Moscow time the suspension of work amid the collapse of the Turkish lira. On December 17, the Turkish currency rate fell below 17 lira per dollar – to 17.009. The fall comes amid the abnormal monetary policy pursued by the country’s financial authorities over the past four months. They are supported by the executive branch represented by President Recep Tayyip Erdogan. The lira exchange rate has more than doubled since the beginning of the year – in January the dollar was worth about 8 lira.
On December 16, the Central Bank of Turkey again lowered the rate by 100 basis points – to 14%. Prior to that, on Monday, December 13, the Turkish lira rate renewed its historic low of 14.99 lira per dollar, but the regulator managed to win back the fall thanks to currency interventions to 13.7 lira per dollar. But after the new decision to cut the rate, the lira accelerated the fall – its rate fell shortly after the opening of the Istanbul Stock Exchange, at about 9:45 Moscow time, to 16 per dollar on the morning of December 17.
The Turkish Central Bank under pressure from Erdogan is stubbornly lowering the rate. According to the Turkish leader, this is done to help local industry and business, for the sake of turning Turkey into an export-oriented country, as well as suppressing speculators on the stock exchange. To correct the exchange rate of the lira, gold and foreign exchange reserves are being used, which are rapidly dwindling. Any attempts to resist this decision are suppressed.
The former head of the Central Bank, Naji Agbala, was fired after he raised the interest rate to 19% in March. Later, he and his also dismissed deputy Semih Tumen joined opposition critics of the government’s financial policies. In Istanbul and Mersin, thousands of opposition rallies have already taken place because of the fall of the lira, but the financial regulator, under pressure from the executive branch led by Erdogan, continues to cut the rate. Meanwhile, exactly a week ago, S&P revised its outlook for Turkey to negative due to the uncertainty of the direction of monetary policy amid growing external risks.
Despite such fluctuations in the lira, it is incorrect to bury Turkish President Erdogan as a politician, Amur Hajiyev, a researcher at the Turkish Sector of the Institute of Oriental Studies of the Russian Academy of Sciences, is sure. Of course, the fall of the Turkish currency hits the wallets of the common population, but criticism of Erdogan is already on the decline. At the same time, the president has something to show the population as his merits.
According to Hajiyev, Erdogan’s trump cards are foreign policy achievements and construction megaprojects. Successes in Nagorno-Karabakh and in relations with Russia also play into the hands of the Turkish leader. The launch of the first power unit of the Akkuyu nuclear power plant, planned for 2023 with the help of Russia, will also have a positive effect on his image. In addition, the Turkish authorities have already relieved themselves of some of the responsibility for the fall of the lira, the expert notes. Statements were made that the crisis was not a consequence of Erdogan’s mistakes, but the result of deliberate and deliberate actions to “Sinify” the Turkish economy. Erdogan also feels confident in the domestic political field. The coalition of his “Justice and Development Party” with nationalists gives him the necessary number of votes to form a government and until the elections in 2023 the Turkish leader will definitely stay afloat, Hajiyev summed up.
Erdogan is absolutely sure that he is right, and he will continue to manage the Turkish economy in the same “manual” mode, he has a clear vision of this, and he personally does not care much about the problems of the fall in the lira exchange rate and inflation. But there is an objective factor in the impoverishment of the population and the growth of its discontent, says Alexander Vasiliev, director of the International Russian-Turkish Center of the Russian State Humanitarian University. Turkish exporters now, of course, benefit from falling costs, but this policy has negative socio-economic consequences for Erdogan in the elections in 2023.
It is another matter, notes Vasiliev, that the opposition now has nothing to offer. And if the drop in living standards becomes critical for the Turkish voter, Erdogan has a tried and tested path of military adventures, for example, the introduction of troops into the Kurdish northeast of Syria, Vasiliev says.
The psychological barrier for the rational regulation of rates in Turkey has long been passed, what is happening now are purely political, not economic decisions of Erdogan, said Grigory Sosnovsky, director of the regional network for work with wealthy clients of BCS World of Investments. This financial policy allegedly has a long-term goal – the export orientation of the Turkish economy on the model of China, for which the cheaper the lira, the better, the expert continues.
But there is a fundamental difference between China and Turkey, and this is the root of the erroneous policy of the Erdogan government: the Turkish economy is critically dependent on foreign investment, while the Chinese has always developed mainly on domestic resources. The Turkish economy is also critically dependent on imports of energy resources, which are now becoming more expensive, and the price of energy for the same industry is growing – now is the wrong time to aggravate this situation. The entire economic status of Turkey now depends on politics – as a NATO member, as a partner of Saudi Arabia and so on, the expert says.
From the point of view of common sense, the policy of the economic bloc of the Turkish government is nonsense, stupidity, since it is impossible to lower the rate and at the same time fight inflation, Sosnovsky says. Only serious popular unrest due to the lower living standards of the population will probably be able to stop Erdogan in this insane economic policy, the expert concludes.
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